PRC-2 · Chapter 5 · Question 9 of 50
If a nominal interest rate is strictly set at 10% per annum, which of the following compounding frequencies will mathematically produce the highest effective annual yield?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Compounded Monthly
Explanation
The effective annual yield increases as the compounding frequency increases. Among the choices provided, monthly compounding happens the most frequently (12 times a year), thus producing the highest effective rate.
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